He singles out the rand’s strength as the main root of the problem, which has reduced the competitiveness of manufacturers to the point where they have lost out on supply contracts for new vehicle models to be launched next year.
“The local content in these models will be disappointingly low, and this lost business will affect component manufacturers for the next seven years, when new models will be announced and new contracts awarded,” Williams explains.
For some years, the industry has been performing phenomenally, with growth rates in exports in the order of 40% experienced each year until last year, when the export growth rate fell to seven per cent.
Williams expands on the dilemma facing components manufacturers: “The spares market in South Africa – for some six-million to seven-million cars on the road – is large enough to support manufacturers of parts requiring regular replacement, but other manufacturers must look abroad to find markets of a suitable size.” Unfortunately, trading in dollars has hurt those manufacturers exporting to the US and other dollar-trading countries with the dollar’s current weakness, and many have cut back on supplies to the lowest volumes possible.
“There needs to be some rationalisation in the component industry; in Europe, similar difficulties have led to job cuts and it is inevitable that the same route will be taken locally,” he warns.
Common knowledge to many is that car manufacturers have been amalgamating their businesses, but less reported is the fact that such consolidation is occurring between suppliers.
Williams informs that, worldwide, small component-manufacturing companies are struggling to survive and have been taken over by large multinationals.
In South Africa, the trend is for tier-one businesses to be bought over by foreign-owned companies, with the result that the technology is usually removed and taken abroad, leaving no local research-and-development facilities.
Further, this presents problems for these newly foreign-owned companies to meet black economic empowerment (BEE) criteria, and many rate poorly on scorecards.
To this end, Naacam and the National Association of Automobile Manufacturers of South Africa (Naamsa) have decided to collaborate to tackle black economic empowerment (BEE) issues.
“We are going to measure our members’ BEE progress using the government’s scorecard system – though the scores may be low because the criteria in the scorecard do not really apply to the industry, we will be able to monitor their progress over time,” Williams says.
A system adopted in Kwazulu-Natal by ten vehicle manufacturers is to be replicated in other automotive clusters.
These ten companies investigated BEE suppliers in the region, from which four were identified as having the potential to meet their high quality standards on parts.
Together, the ten companies have the critical mass to invest the human and capital resources into intensive skills transfer at the selected BEE organisations, to fast-track their growth as high-quality suppliers.
The Western Cape is to begin a similar programme, and Gauteng will follow if the two programmes prove to be successful.
Williams stresses that current automotive industry challenges, while hampering profitability and competitiveness, should not hinder preparation for future challenges and the focus on growth.
“The industry must forge and foster international links to establish markets for exports,” he notes.
The Department of Trade and Industry, through its Motor Industry Development Programme (MIDP), is sponsoring stands for local manufacturers at the Automechanika exhibition in Germany, in September, for which Naacam will set up prequalified meetings for discussions on technology and sales, among other topics.
The association will also organise meetings and investors clubs’ presentations in Switzerland, where interest in investing in the South African industry is mounting.
Williams is optimistic that after the next few years’ difficult period, a greater range of foreign involvement in the market is likely.
He ardently hopes that certain manufacturers will increase their global competitiveness to win large export orders that will introduce economies of scale, as BMW, DaimlerChrysler and Volkswagen have managed to do.
Indeed, one of the MIDP’s main goals is a streamlined manufacturing structure, with fewer vehicle models being produced locally, but in larger quantities than can be exported, from which credits can be used to subsidise the importation of other models into South Africa.